All Forum Posts by: Kenneth Z.

HI Brandon,

Your questions about what to look for in residential homes for distress is going to depend on the area. Is there an HOA that governs the area then you might not get the super obvious distressed house. Look for subtle things in this situation. Broken screens on windows, non maintained back yards, mail pilled up. It will really just be dependent on the areas you are looking at. Drive through your area and find well maintained houses take a mental note of what is different. Then drive the same neighborhood and look at properties you think are distressed and compare. Build yourself a baseline for the area and use it to find the properties you are looking for. As you drive the neighborhood more and more and get familiar with it you will notice things that were not as obvious. We all want a large amount of things to be wrong with a property but most of the houses you might end up buying might only have subtle clues that make them stand out.

 I guess I should have explained my post a little bit better. I was more advocating for understanding the business model of your investors and what they are willing to accept. 

Just because the house does not fit his business model doesn't mean it is a dead deal. It is all about finding an investor that meets your deal. Some investors don't mind paying more money for a relatively rental ready property. If your numbers are solid and I mean rock solid it might not be a smoking deal but I bet there is an investor that would put it in there portfolio. 

Try an independent online resource or get a hold of an agent. If you aren't networking with local agents and you can't find the info any other way what have you tried so far?

I would make sure you read the various seller financing blogs on this site. Make sure you understand terms length of loan, interest rate, down payment. What is your goal with the property as well. A lot of what you are going to need to get seller financing is going to depend on your end goal. Is this a wholesale, rehab, buy and hold? Determine your clear end goal and work backwords from there.

I concede that I did not outline all the details for the property. That being said positive cash flow is and can be factored for repairs. You also don't outline your negative cash flow values. The 50k appreciation that you have combined with a negative cash flow offset by a tiny mortgage reduction over a time frame such as a year. Would brings you in at less than 50k plus closing cost, realtor fees, escrow and title fees. Not to mention you intention is to offload after a year per your previous example. In one year on a $500k house estimating at a crazy 10% appreciation rate (Market dependent) to make your 50k. You lose 6% on average to real estate agents 30,000 + inflation rate 2-3% a year + escrow title and carrying costs then take the economy into factor does your market take a down turn or go up . With your business model I don't see how you could even expect a consistent rate of return. I'll commend the FHA purchase idea if you get approved but for you to consider doing a single $500k purchase for an appreciation return after 1 year I don't see it being feasible. The lower income property's do run into similar issues but most of the time they are cash financed or private money allowing for better terms than FHA. They are also bought for buy and hold over a longer interval 5, 10, 15+ years providing a consistent rate of return that is not crazy but can weather the average whim of a market if purchased correctly.

@Ewa Reza undefined

In LA you'll buy multifamily for let's say $500K. You're out of pocket $3K after a year (negative cash flow) but your property appreciated $50K!

This is by no means a proper calculation. A lot of investor buyers I work with can't get over that negative cash flow and simplifying things this way makes them realize the pictures is much bigger.

I would not advise anyone on doing this method of investing. I understand what you are saying and the numbers do appreciate and if you can accept that if your numbers bottom out your bankrupt then go ahead. Buying an expensive home feeding the cash hippo and trying to bank on appreciation is a super risky business model. One market shift while your chips are on the table and you can lose way more than you calculated in gaining. The reason your investors friends can't get over the negative cash flow is because you are playing the lottery with the market on your purchases.

Let's look at this from another stand point. If your investor friends take the 500k you spent on your big purchase split it between 10 properties and made them all positive cash flow they make 200 - 300 a month as you illustrated they make in actuality 250 * 10 =  2,500 positive cash flow a month. This is also spread over a large property portfolio with risk mitigation due to spread loading there cash. Even if the market dips on one market the other properties wont or if they all go under they are out the same amount of money as your investment (not as likely) but retained the positive cash flow of 30,000 a year.

I don't believe they hold open auctions for the state of California. I will have to check though because I have not done extensive research in it. Thanks for the great idea I appreciate it. 

Bump

Rick the location is what it is but if the math works for someone are you telling them not to do it? 

I am just confused at to the purpose of your post.